By default, the game adds up the value of clothing and armor the player is wearing and uses that value in various dialogue checks, including to determine whether the player is naked. This can result in some nonsensical situations, as PoodleSandwich astutely observed.

Options:

Smart Filter:
Filters equipped items list only when checking for nudity. (PC Clothing Modifier <, <=, == 0) All other checks use the full unfiltered equipped items list. To the best of my knowledge, all nudity checks in dialogue happen before other clothing value checks, at least in the vanilla game and expansions. (I dumped it all out with tes3cmd and couldn't find any counterexamples.) This allows your character to pass the nudity check with the configuration you prefer, but then have the full value of their attire considered for any subsequent checks.

Gender Filter:
Filters equipped items list with respect to gender. Male PCs are considered naked if bottomless, female PCs if bottomless or topless. Per slot settings are ignored if this is "On". This assumes that the residents of Vvardenfell share typical Western mores. While that may be a decent assumption, I will consider alternatives if there's interest.

Slot Filters:
One filter setting for each of the clothing and armor slots. Set to "Off" to exclude a slot from the PC Clothing Modifier check. These settings are ignored if "Gender Filter" is "On". By default, rings and amulets are excluded.

Blacklists:
One blacklist each for clothing and armor, with buttons for each slot. Any item on the blacklist will be excluded from the PC Clothing Modifier check. The blacklist influences every other filter. The only time it is not applied is when "Smart Filter" is "On" and PC Clothing Modifier is being used for a non-nudity check.

Requirements:
Note: This mod uses the pre-release 2.1 branch of MWSE, currently in development.

This mod requires Morrowind Graphic Extender (MGE-XE) 0.10.1 or later and the latest nightly build of MWSE.

Installation:

If upgrading from 1.x, delete the following first:
Delete the cover_yourself folder from .\Data Files\MWSE\mods.
Delete cover_yourself.json from .\Data Files\MWSE\config.

To install:
Extract the archive into .\Data Files in your Morrowind installation directory. The mod should contain the following files:
.\Data Files\MWSE\mods\merz\cover_yourself\main.lua
.\Data Files\MWSE\mods\merz\cover_yourself\config.lua

Using this Mod:

There is no esp file to activate. Simply install the MWSE 2.1 and this mod, and load up an old or new game.

Removal:

Delete the .\Data Files\MWSE\mods\merz\cover_yourself folder.
Delete .\Data Files\MWSE\config\cover_yourself.json

Known Issues:

None. Please report any issues on the Nexus page.

Incompatibilities & Save Game Warnings

This mod does not alter the save game contents in any way, and is clean to run with any other known mod. If a conflict is found, please report it on the Nexus.